CHAPTER - 4 RESEARCH MYTHOLOGY

CHAPTER - 4 RESEARCH MYTHOLOGY 4.1 Introduction 71 4.2 Problem Statement 71 4.3 Significance of the Study 71 4.4 Objective of the Study 73 4.5 Research Design 73 4.6 Research Instrument 73 4.7 Source of Data Collection 74 4.8 Analysis of Information 74 4.9 Period of Coverage 74 4.10 Scope of the Study 75 4.11 Tools and Techniques 75 4.12 Selection of Sample 76 4.13 Limitation of the Study 81 4.14 Review of Literature 82 70

CHAPTER - 4 RESEARCH METHODOLOGY 4.1 Introduction: To understand the performing assets and non performing assets and to detect the discrepancies of existing recovery process of co-operative banks in South Gujarat. In order to minimize the events of defaults that lead to non performing assets. This chapter deals with stepwise procedure adopted to carry out this research study. It is felt that the procedure adopted hers is sufficiently effective and most accurate in the light of research and various limitations. 4.2 PROBLEM STATEMENT:- To research about the financial analysis of non performing assets at the cooperative banks. Also study about the rating of banks on NPA management. As an investor (depositors) or creditors point of view NPA of any co-operative, nationalized or private bank is an important thing in study of the financial position of a bank. If NPA is greater than the PA, then it would create a problem or can cause failure of a bank in near future. So from a safety point of view it is very necessary to study NPA of any bank. Researcher selected to do research about the financial analysis of UCBs in which his main focus is an NPA of the banks because from last ten years, a no. of co-operative banks are being failure due to high NPA ratios. So it is very important for success of any bank to maintain PA and having less or zero NPA. Researcher has also to put the emphasis on rating of banks on NPA management. So that it can be said which bank is more efficient in management of its assets? 4.3 SIGNIFICANCE OF THE STUDY:- Co-operative banks play very important role in providing banking services to common man in their area of co-operation. A small depositor or a small borrower feels comfortable in dealing with the local staff of co operative bank than to the staff of nationalized banks and private sector banks. If co-operative banks go in liquidation due to abnormal increase of NPA not only customers and staff members of that particular co-operative bank will suffer but all other co-operative banks will also get a major setback. Leading to severe damage to the reputation of entire co-operative 71

sector which is very important for the balance of economic development of our country. Banking is the life blood of Indian economy. Banking has three types of sectors, which provide finance to different sectors i.e. private sector, public sector and cooperative sector. The co-operative banking sector in India plays an important role in expanding rural economy as well as banking structure and its services to the last man of the society. The co-operative banking structure has developed very fast in India but still it lags in so many things like ideal liquidity position due to NPA of customer as well as staff, modernization of banking structure etc. The Study of the co-operative structure in Gujarat has proved that maximum cooperative sector damaged its reputation because of high position of NPA which effect ultimately the economic development of the state and nation. The NPA impact on the performance of the bank in which it reduces its interest income, the net worth of the bank, demoralized the staff, hardens Capital Risk Adequacy Ratio which also restricts recycling of fund and hinders the desirable yield. Looking to the situation of banks it is desirable to take effective measures to reduce the NPAs as low as possible. Not only reduction but up gradation of quality of such assets would also be desirable for improvement Managing these Non performing assets is required in order to protect the interest of shareholders, depositors as well as increase the credit worthiness of bank. It is also advisable to increase the profitability by making the provision as well as expansion plan. NPA should be reduced for sustaining the economic growth, to increase the welfare of employees, to maintain reputation of the banks as well as to create job opportunities for future generation. 72

4.4 OBJECTIVE OF THE STUDY:- The present study Management of Performing and Non Performing Assets A study of selected urban co-operative banks in South Gujarat. has been initiated to fulfill certain objectives which are as follows: * Main:- To study the PA and NPA characteristics and effect on the financial position of the banks. * Secondary:- i. To study the brief guidelines of Reserve Bank of India (RBI) given by Narsimham Committee. ii. To know the effectiveness of strategies adopted by the banks. iii. To understand the NPA and to detect the discrepancies of the cooperative banks in order to minimize the events of defaults that lead to non performing assets. iv. To study the causes that lead to creation of Non Performing Assets. 4.5 RESEARCH DESIGN:- In the analysis of the NPA of the co-operative banks, descriptive as well as analytical research design is used, in which past data of the banks are used to interpret the NPA of the banks. 4.6 RESEARCH INSTRUMENT:- To collect the necessary data personal discussion method removing and clarifying the doubts and misunderstandings on the spot. As a result clarification of thoughts and better understanding is reflected. 73

4.7 SOURCE OF DATA COLLECTION:- The study focuses on entire condition of non performing assets of co-operative banks. As it was descriptive type of Research work, for collecting primary data Primary Source:- Primary data have been collected through discussions with managerial personnel, executives and staffs of the selected UCBs. Secondly, for the collection of secondary data. Secondary Sources:- Secondary data are taken from annual reports (Balance Sheets, Profit & Loss Accounts) of the selected UCBs, internal circulated matter from RBI, RBI S guidelines, Trend & Progress reports of RBI, Co-operative journals, co-operative diary and from the web sites available on net. 4.8 ANALYSIS OF INFORMATION:- Researcher adopted financial tool to know the condition of NPA of the banks and the Ratio Analysis under NPA management. The conclusion is drawn on the basis of NPA management of last eight Years i.e. 2001-02 to 2008-09. After going through the analysis, researcher gave some of the suggestions, which would help co-operative banks in reducing the non performing assets. 4.9 PERIOD OF COVERAGE:- Researcher chose the period of coverage for ranking the banks on the basis of NPA management as last eight financial years i.e. 2001-02 to 2008-09. This period is selected for the study because the complete data for the entire period is available. This period is considered adequate to study, trends and infer valid conclusion 74

4.10 SCOPE OF THE STUDY:- The study covers only those UCBs which are registered in South Gujarat. It does not cover those UCBs which are working in South Gujarat but registered elsewhere. This study enables researcher to improve knowledge about the banking sector, specifically on account of NPAs. This study also enables the banks to know its actual position on NPA management in last eight years. 4.11 TOOLS AND TECHNIQUES:- The following accounting, statistical and diagrammatic techniques are used by the analyst: (A) Accounting techniques (B) Statistical techniques (C) Diagrammatic and graphic presentation of data (A) Accounting techniques The following accounting techniques are used by the analyst: (1) Comparative statement analysis. (2) Common size statement analysis. (3) Ratio analysis. (B) Statistical techniques The following Statistical techniques are used by the analyst: (1) Mean (x), (2) Standard deviation (б) (3) Coefficient of variation (C.V.) (percentage) (c) Diagrammatic and graphic presentation of data Diagrams and graphs are exhibiting the data in sample, comprehensible and intelligible form. 75

4.12 SELECTION OF SAMPLE:- There are 33 UCBs registered in South Gujarat as on 31 st March, 2009. The names and their locations are mentioned below: Sr. No. Name of the Bank Location 1. Aadinath Co-Op. Bank Ltd. Surat 2. Akhand Aanand Co-Op.Bank Ltd. Surat 3. Associate Co- Bank Ltd. Surat 4. Bardoli Nagarik Sahakari Bank Ltd. Bardoli, Dist. Surat. 5. City Co-Op. Bank Ltd. Surat 6. Fanancial Co-Op. Bank Ltd. Surat 7. Kosaamba Co-Op. Bank Ltd. Kosamba,Dist. Surat 8. Mandvi Nag.Sah.Bank Ltd. Mandvi,Dist.Surat 9. Panchsheel Mer. Co-Op. Bank Ltd. Surat 10. Prime Co-Op.Bank Ltd. Surat 11. Rander People s Co-Op. Bank Ltd. Surat 12. Sachin Ind. Co-Op. Bank Ltd. Surat 13. Sarvoday Sah. Bank Ltd. Surat 14. Surat Mahila Nag. Sah.Bank Ltd. Surat 15. Surat Mer. Nag. Sah. Bank Ltd. Surat 16. Surat Nag. Sah. Bank Ltd. Surat 17. Surat National Co-Op. Bank Ltd. Surat 18. Surat People s Co-Op. Bank Ltd. Surat 19. Sutex Co-Op. Bank Ltd. Surat 20. Textile Co-Op. Bank Ltd. Surat 21. Udhna Citizen Co-Op.Bank Ltd. Surat 22. Varachha Co-Op. Bank Ltd. Surat 23. Amod Nag. Sah. Bank Ltd. Amod, Dist.Bharuch 24. Ankleshwer Nag.Ssh. Bank Ltd. Ankleshwer,Dist.Bharuch 25. Ankleshwer Udy. Nag. Co-Op. Bank Ltd. Ankleshwer,Dist.Bharuch 26. Hansot Nag. Sah. Bank Ltd. Hansot,Dist.Bharuch 27. Jambusar People s Co-Op. Bank Ltd. Jambusar,Dist.Bharuch 28. Mahila Co-Op.Bank Ltd.,Bharuch. Bharuch 29. Navsarjan Ind. Co-Op. Bank Ltd. Ankleshwer,Dist.Bharuch 30. Rajpipla Nag. Sah. Bank Ltd. Rajpipla,Dist.Narmada 31. Gandevi People s Co-Op. Bank Ltd. Gandevi,Dist.Navsari 32. S.B. Pardi People s Co-Op. Bank Ltd. Pardi,Dist.Valsad 33. Valsad Mahila Nag. Sah. Bank Ltd. Valsad 76

Location of selected UCBs SOUTH GUJRAT (AREA MAP) 1.SPB(Surat) 2.SUTEX(Surat) 3.BNSB(Bardoli ) 4.MNSB(Mandvi ) 5.VMNSB(Valsad) 6.GPCB(Gandevi) 7.SBPP(Valsad) 8.JPCB(Jambusar) 9.RNSB(Rajpipla) 10.HNSB(Hansot) 77

The sample of present study is restricted only to those UCBs which are registered in South Gujarat. Up to March 31, 2009 only thirty three UCBs have been registered in South Gujarat. Out of these, the data of 10 UCBs for the period of eight years (i.e. from the year 2001-02 to 2008-09) are taken for the study. These are as under: 1. The Surat People s Co-operative Bank Ltd. (SPB) 2. The Surat Textile Traders Co-operative Bank Ltd. (SUTEX) 3. The Bardoli Nagarik Sahakari Bank Ltd. (BNSB) 4. The Mandvi Nagarik Sahakari Bank Ltd. (MNSB) 5. The Valsad Mahila Nagarik Sahakari Bank Ltd. (VMNSB) 6. The Gandevi People s Co-Op. Bank Ltd. (GPCB) 7. The Sardar Bhiladwala Pardi People s Co-Op. Bank Ltd. (SBPP) 8. The Jambusar People s Co-Op. Bank td. (JPCB) 9. The Rajpipla Nagarik Sahakari Bank Ltd. (RNSB) 10. The Hansot Nagarik Sahakari Bank Ltd. (HNSB) The Sample of Present Study is restricted only to those UCBs which are registered in South Gujarat area. The sample sleeted each district of south Gujarat except Tapi and Dang districts. In Tapi and Dang districts no Co- operative bank in existence. It covers a span of eight years i.e. from 2001-02 to 2008-09. The data for the present study will be obtained from the 2001-02 to 2008-09 annual financial reports of the selected UCBs and from various journals of trade and co-operation, RBI bulletins and circulars, books and various committee reports based on the UCBs and from lending daily news papers, form the south Gujarat urban Co- operative banks Association and from district registrar co-operative societies. Analysis of financial statements of selected UCBs will be done by applying the tools and techniques of accounting and Statistical such as ratio analysis, common-size statements analysis, comparative statements analysis, Mean ( ), S.D.(σ), C.V.(percentage). In addition, various types of tables, graphs,, charts and diagrams are incorporated wherever required to interpret collected data. 78

There are seven Districts in South Gujarat region namely bharuch, Narmada, Surat, Tapi, Navsari, Valsad and Dang. Dang being a tribal belt and Tapi, a recently formed district, do not have any Co- operative banks registered. There are in all 62 Co- operative banks in south Gujarat region. 45 of them are functioning, 11 were liquidated, 3 district central banks, and 3 Rural Development banks. There are 3 scheduled Co-op. banks also in this area, 2of them are situated in Surat District and 1 in Valsad. There are also 32 non scheduled banks and 10 multistate banks. Sample for the study will be taken district wise from these banks. Sample will be taken from two banks in bharuch district, 1 each from Narmada, and Navsari district, 2 from valsad and the two co-op.banks(1 is scheduled and 1 is non- scheduled) from surat urban area and two banks from surat district. The sample is selected after taking the following factors into consideration. The sample represents the banks of different sizes viz. area, paid up share capital, advances, deposits and age of the bank. Size: The sample has been classified on the basis of size of the UCBs taking into consideration paid up share capital, deposits and advances as on 31/03/2009. The classification is as follows:- Paid up Share Capital as on 31/03/2009 Available No. of UCBs Selected Less than Rs. 100 lakhs 10 04 Between Rs. 100 lakhs and Rs. 500 lakhs 17 03 Rs. 500 lakhs and above 06 03 TOTAL 33 10 Source : Based on Annual Reports of 33 UCBs 79

Deposits as on 31/03/2009 Available No. of UCBs Selected Less than Rs. 1000 lakhs 04 02 Between Rs. 1000 lakhs and Rs. 5000 lakhs 18 05 Between Rs. 5000 lakhs and Rs. 10000 lakhs 03 NIL Rs. 10000 lakhs and above 08 03 TOTAL 33 10 Source: Based on Annual Reports of 33 UCBs Advances as on 31/03/2009 Available No. of UCBs Selected Less than Rs. 1000 lakhs 09 02 Between Rs. 1000 lakhs and Rs. 5000 lakhs 15 05 Between Rs. 5000 lakhs to Rs. 10000 lakhs 05 NIL Rs. 10000 lakhs and above 04 03 TOTAL 33 10 Source: Based on Annual Reports of 33 UCB Particular Paid up share capital (Rs. In lakhs) Thirty Three UCBs Selected Ten UCBs % of Selected Ten UCBs to total thirty three UCBs 11133.32 5855.26 52.59% Deposits (Rs. In lakhs) 319929.94 186138.69 58.18% Advances (Rs. In lakhs) 191357.39 113174.28 59.14% Source: Based on Annual Reports of 33 UCBs 80

Sample classification has been done to find out weather paid up share capital, deposits and advances of selected 10 UCBs represent all the 33 UCBs or not. By classification it is clear that selected banks represent 52.59% paid up share capital, 58.18% deposits and 59.14% advances of whole group of study Age: The sample is also classified with a view to finding out whether it represents the UCBs of different age groups on the basis of the data of establishment. The classification is as follows: Period of Establishment of UCBs in South No of UCBs Gujarat Available Selected On or before 1950 07 04 Between 1951 to 1965 03 02 Between 1966 to 1980 08 03 Between 1981 to 1995 04 01 Between 1996 to 2000 11 NIL TOTAL 33 10 Source: Based on Annual Reports of 33 UCBs 4.13 LIMITATIONS OF THE STUDY:- The following are the major limitations of the present study: a) Since the primary data & secondary data used in this work are collected from the officers of UCBs and published annual reports of respective UCBs respectively, they have inherited limitations. b) The present study is based on the selected ten UCBs. As the size of the sample selected is very small, the limitations of a small sample are applicable. Moreover, the sample includes only those UCBs which are registered in South Gujarat and statistical information of which are available for the entire period of study. The sample does not represent those UCBs which are not registered in South Gujarat. Thus, the conclusion inferred from the above study may not be applicable to the 81

UCBs which are not registered in South Gujarat. No sample has been taken from multy state UCBs as their registration is out of Gujarat. c) The limitations of tools and techniques applied for the analysis are inherent in the present study. d) The analyst could not get some information otherwise useful for a deeper study, due to the RBI restrictions on disclosure of data on part of higher officials. In spite of all these limitations this study throws light on the important challenging problems of the UCBs. 4.14 REVIEW OF LITERATURE:- (1) Ms. Abhilasha Agarwal Topic : Analysis of financial statement - a study of the UCBs in surat city The researcher has concentrated on analyzing the profitability, liquidity, Capital structure and Fund flow of Select UCBs in Surat for the period 1994-2000 from profitability analysis she concluded that the UCBs have totally failed in management of funds as they paid high rates of interest and underutilized funds and got low returns. Liquidity analysis showed that instead of increased current assets the Liquidity position of the UCBs can not be considered satisfactory as the proportion of total short term advances and investment was higher which lesser liquid assets than cash are And bank balance. As far as current ratio is concerned, the UCBs utilized short term funds in advancing loans and investments for long term which affected liquidity and endangered the security of the suppliers of the short term funds The quick ratio also indicated an unsatisfactory liquid position of the UCBs. It has been noticed that the UCBs are more interested in investments than advances. The researcher has attempted Successfully to analyze the financial status of UCBs, but no effort has been made to study the NPA position of the banks. 82

(2) Mr. H.H. Gandhi Topic : Comparative study of the UCBs In Surat City. Mr. Gandhi has taken up a Comparative Study of the UCBs in Surat City. His Study laid stress on the working capital, investments, classification of deposits, expenses analysis, advances and profit. His Major observation is that the cost of funds has increased remarkably during the period Of Study (1993-1997). The Net interest income and the net profit reduced as compared to the total income while the net interest expenses increased. He has touched only the outer aspects in the functioning of UCBs In Surat. The study does not provide any internal functional aspects that contributes to the performance of UCBs. (3) Dr.R.K.Patel Topic: Problems and prospects of UCBs with special Reference to UCBs in Ahmedabad. Dr. Patel has undertaken a structural, financial and factor analysis of the UCBs considered for study. His efforts revealed that there is lack of effective professional management and financial management. The NPA ratio is high and the customers are not satisfied. Most of the UCBs are unaware of the recent developments in banking sector and the customers wish that UCBs implement modern techniques in line with international standards. (4) M. Niyati Golwala (DBIM, VNSGU,SURAT) & Ms.Yamini A Patel ( Shree Leuva Patel Trust. M.B.A. MAHILA COLLEGE, AMRELI, Saurashtra Uni. Rajk Both the MBA students studied the Surat People s Bank, the best Co-operative Bank in India. They observed that the NPA position of the bank is very satisfactory. The limitation of this study is that they have taken only one bank and Thus no comparative analysis was possible. 83

(5) Banker s Guide to Non Performing Assets With reference to commercial and co operative Banks (3 rd Revised Editin 2008) By sudhan D. Yardi, Vishwanatha S. Perbhu, A.J. Prasad. Published by yardi Prabhu consultants Pvt. Ltd ; Mumbai. The book is a useful guide to bankers, Professionals. Financial executers and students as it provides practical orientation, through and following chaplers. 1. Introduction of non Performing assets 2. Income Recognition 3. Asset classification 4. Provisioning Norms 5. Prudential Norms for investment portfolio by banks. 6. Prudential Norms for advances of urban Co- op. Banks. 7. Prudential Norms for investment by urban Co- op. Banks. 8. statutory auditors and prudential Norms. 9. Management of Non Performing Assets. (6) Co- Operative Banker s Handbook cum Diary Edited by John D Silva, Bombay(31 th Edition -2008). This book contains the following chapters 1. Banking Regulation Act. 2. Circulars Reading Banking Regulation Act. 3. Foreign Exchange Business 4. Interest Rates an Rupee Deposits and Maintenance of Deposit Accounts. 5. Loan and advances 6. Management of Advances. 7. General 8. Miscellaneous This book Published every year, Provides important information, guidelines, issues, norms etc. Pertaining to co- operative Banks. 84

(7).Paper Presented by Mr. Jyotindra M. Gajiwala (Asstt. Accountant, The surat People s Co- op. Bank Ltd, Surat.) at Surat jilla Sahkari sangh training for UCB officers. Topic: Brief Guidelines on NPA & its Management. The Above Paper covers many general aspects related to NPA in Co Operative banks like Assets Classification, Provisioning Norms, Rescheduling Advances, Effects of NPA, Approximation of recovery, NPA Management Strategies etc. (8) Swadesh Swapna ( Weekiy Newspapers specially For Co- operative Sector) (Published. by Shraddha Publications, Surat). K. V. Lakum (Board Members and visitor Professor, National Institute of Co operative Management, Gandhinagar, Gujarat.) Mr. K.V. Lakum writes every week under the title Nagarik Shakari Banko mate reserve Bank of India in sarvaangi suchnao (RBI s Driectives for Urban Co Opertive Banks ) norms of NPA Rules, Regulations and Master circular for provisioning Norms of NPA are dealt with by the writer in great detail. 85